Overview
In April, McDermott gathered more than 100 health and life sciences innovators, investors, business leaders and advisers in Paris for our annual European Health & Life Sciences symposium. With such an esteemed crowd available to share insights and expertise, we took the opportunity to consider some of the more recent developments in US government policy and how political shifts on healthcare policy might impact the sector in the years to come.
With the new administration beginning to make policy changes from the White House, the impact of a shift in approach to US health and life sciences oversight was a hot topic across the symposium agenda. “The US policy environment is incredibly dynamic right now,” says McDermott partner James Ravitz. “The pace of change is unlike that of previous administrations, with the speed at which the new president seeks to move representing a paradigm shift.”
In Depth
Food and Drug Administration Cuts
One of the most notable impacts of the new administration has been the establishment of the Department of Government Efficiency, which has significantly cut staffing at the Food and Drug Administration (FDA) as part of its cost-saving agenda.
While the new FDA commissioner Martin Makary has insisted that funding cuts will not impact the agency’s core staff, who are tasked with overseeing the approval and regulation of drugs and devices in the US, the moves have created some uncertainty. The cuts are concentrated in the communications, IT, legislative and policy teams rather than inspectors and review staff, so the agency continues to prioritise faster drug approvals, he has said.
With a significant number of staff cuts also taking place across the US Department of Health and Human Services (HHS), of which the FDA is one part, to reduce employees from 82,000 to 62,000, we can certainly look forward to a period of consolidation as the dust settles around a new structure. A lot of personnel changes will also take time to implement, with Robert F Kennedy now at the helm of the HHS and new heads of offices assuming control throughout the department.
It is too early to tell how changes within the HHS and FDA will impact reviews, policy and regulation, but the industry should prepare for a more dynamic backdrop as the future direction of the government bodies takes shape.
The Inflation Reduction Act and Drug Pricing
The Inflation Reduction Act (IRA) of 2022 was a federal law introduced by President Biden that included prescription drug reforms aimed at lowering prices for patients. The introduction of the first ever federal drug pricing programme is scheduled for 2026 and President Trump shows no sign of changing course, having himself focused on drug pricing in his first term.
On April 15, 2025, President Trump signed an executive order on lowering drug prices that set out a raft of new initiatives, with specific implementation deadlines for government agencies over the next year. The EO highlights a focus from the administration on minimising the perceived negative impact of negotiated prices on innovation and streamlining FDA processes for generics and biosimilars.
One thing to watch moving forward will be how enforcement is handled, given that penalty provisions in the IRA on drug pricing are severe and can be in excess of $100 million. With hospital pricing rules there has been an indication that there may be more enforcement but lower penalties, so it may be that enforcement and oversight of drug pricing rules turns out to be less stringent than first envisaged.
“The other area to watch is the litigation being brought by drug manufacturers against the IRA provisions,” says McDermott partner Emily Cook. “So far those cases have been largely unsuccessful on procedural rather than substantive grounds. Once we see the impact of the provisions when they come into effect next year, there will be additional avenues for legal challenge.”
The uncertainty around drug pricing has led to a cooling of the development of drugs that were thought vulnerable to becoming subject to pricing negotiations, but as more clarity has emerged around which drugs will be impacted, we can expect that to ease.
Speciality Pharma
Despite US efforts to regulate and introduce greater transparency around drug pricing, there remain significant opportunities for businesses to generate meaningful drug revenues. A big area of activity right now is in speciality pharma, namely high-cost drugs that require specialist handling, where we are seeing an increase in prescribing worldwide.
Within speciality pharma, GLP-1 medications that are being used to treat obesity and diabetes are seeing particular demand growth. As a result of supply chain issues in GLP-1s in the aftermath of Covid, compounding pharmacies took off, offering custom-made versions of the drugs when commercially available versions were hard to source. Those compounders are now leaving the market, with the industry focusing on enhancing the availability of branded drugs for patients and consumers.
Trade Policy Discussions
The Trump administration continues to shape its policy on trade tariffs for US imports, with the pharmaceuticals industry lobbying against threats of major tariffs on imported drugs that might bring to an end years of low-cost global trade in medicines.
Drugs in the US are among the most expensive in the world and reducing those costs is a key policy priority for the new government, which believes costs are recouped in the US market for drug development around the world.
We currently observe a wait-and-see attitude towards US tariff policymaking among both investors and companies, but over the long term we can expect disruption to supply chains given the US is such an important market for the entire pharma, biotech and medical device industry.
There are also signs that a change in risk appetite may emerge among global players as they navigate policy shifts. It is possible that more clinical trials may be run out of Europe in an effort to spread risk, and that funding challenges may be felt more acutely by US biotechs, though it is too early to adequately assess impacts.